The redundancy axe took a fresh swing last week when Barclays announced 1,800 job cuts in its corporate and investment bank in spite of soaring fourth-quarter revenues. It was just the latest to sever heads.

Compromise agreement manual

Flow monster Deutsche Bank said in July that it would cut 1,500 jobs from its investment bank; in October, Swiss giant UBS said it would give approximately 2,000 front-office investment bankers the heave-ho. While these are among the biggest, redundancies are happening across the board.

Investment banks routinely fast-track these mass exits using compromise agreements, according to Philip Landau, employment lawyer at Landau Zeffertt Weir Solicitors. In such an agreement, a bank pays a financial settlement to a departing employee and, in return, gets a binding agreement that the ex-employee will make no legal claims against it. A redundancy does not automatically call for such an agreement, but one is often used to protect the bank and terminate employment immediately, according to employment lawyers.

Hundreds of such arrangements are being used in the City on any one day, said Landau, who has drafted thousands of them. He said that the average settlement is up to six months’ salary, but he once saw a payout of over £200,000. He said: “The longer your period of service and the higher your salary, the higher your termination payment.”

Andrew Taggart, head of the UK employment team at law firm Herbert Smith Freehills, said the agreements help to protect a bank against claims of unfair redundancy by individuals who feel they have been unfairly selected for the axe.

Landau said: “A lot of employers use the compromise agreement route as a belt-and-braces position when they are implementing mainstream redundancies, just in case there is a failure of processes.
He has seen a surge in compromise agreements from investment bankers, ever since the present economic climate has taken hold.

For the departing employee, once the terms of the settlement are agreed and signed, there is no going back, so it is worth negotiating hard to get the best deal, lawyers said.

Andrew Young, employment solicitor at law firm Seddons, said departees can negotiate the compromise agreement. He said: “Everything is up for negotiation.”

Here is a guide on how to get the best out of your compromise agreement.

1 Keep the tax man at bay

The first £30,000 of severance pay will be tax-free if it “compensates for loss of office”. However, if, for whatever reason, the UK HM Revenue & Customs decides that tax should have been deducted, the bank might try to claw the tax back from the employee. Those made redundant should scrutinise agreements to ensure no clauses make them liable for tax or other costs or penalties.

2 Read the bonus fine print

Bankers must ensure they are named as a “good leaver” to release their stock, and should watch out for the agreement being “in full and final settlement of all claims – including bonus”. For the employee, this means extracting as much money as allowed by your contract from the bank at the time of departure. For the bank, it means staff can make no future claims for bonuses.

3 Try to take your clients with you

Some banks will try to impose post-termination restrictions or vary existing covenants in a work contract to prevent bankers taking clients with them, poaching employees or joining a rival firm. Taggart said: “These types of restrictions are generally drafted to last between three and 12 months after the employment has ended.” These measures could effectively take bankers out of the market place for many months after they have left, Landau said. But bankers do not have to accept new restrictions and can ask to vary or even waive the existing ones in their work contracts.

4 Get a glowing reference

Most banks will provide at least a standard reference, with the minimum basic information such as dates of employment and job title. Bankers should make sure any reference is attached to the compromise agreement and includes a clause that no oral references will be given that paint them in a less than favourable light. Bankers should also push for a non-derogatory clause to ensure that the bank cannot denigrate them, and even name specific individuals such as a direct line manager to be bound by the clause.

5 Help with fees, please

Most banks routinely offer those made redundant a selection of lawyers and should help with legal fees, anywhere from £250 to £500. Banks have a set list of lawyers who help to draft compromise agreements and can help the departing employee through the process. However, Young said: “I would say get your own lawyer; look after your own interests.”

6 Take time to sign on the dotted line

A bank will give a deadline to sign the agreement, but this is actually quite flexible as long as bankers are seen to be seeking legal advice and not causing delays. Departing employees do not need to accept an agreement if the deadline is unrealistic. But they should fix a deadline for when they get their settlement, including pay in lieu of notice, outstanding holiday, redundancy pay and any other extra sums of money.

-- UK rules will change in favour of the banks

While compromise agreements are now largely used during mass redundancies, new UK laws due to come into effect this summer will make it easier for banks to use them to sever underperforming employees from the organisation too.

Compromise agreements will be re-named “settlement agreements” under the Enterprise and Regulatory Reform Bill, which has been passed by the House of Commons and is before the House of Lords, according to a government spokeswoman.

Currently, an employer cannot offer an employee a compromise agreement out of the blue unless they are in a formal dispute process, because the employee can use that discussion as evidence in an unfair dismissal claim.

Under the new laws, a bank will be able to have a “protected conversation” about a compromise agreement, even where there is no formal dispute, and be assured that conversation will not be cited in any unfair dismissal claim. Sarah Henchoz, employment partner at Allen & Overy, said that the new law will almost certainly work in favour of the banks. She said: “It will be easier for managers to have that initial discussion at an earlier stage without fear of it being used against them at tribunal. They can have these conversations with a bit more vigour.”

-- If you lose your job, you might still be able to access Financial News. To find out if you are eligible for a free subscription while in transition, get in touch with the Financial News subscriptions team on
+44 (0) 20 3217 5379, or email licensing@efinancialnews.com

--This article was first published in the print edition of Financial News dated February, 18, 2013